Silver Straddles Rate Hike and Demand Decline
The silver market is facing contradictory forces as it hovers around $64 an ounce. On one hand, the Federal Reserve's rate decision on Wednesday could lead to a quarter-point hike, lifting the benchmark rate to between 3.75% and 4.00%. This would mark the first increase since July 2023, driven by US inflation remaining above the central bank's target at 3.4% in August.
Despite this hawkish stance, buyers have repeatedly stepped in below the $64 threshold, defending key support levels. Energy markets are adding to price pressure, with Brent crude last quoted above $107 a barrel, typically raising the opportunity cost of holding non-yielding assets like silver.
A structural shift is underway on the demand side, with J.P. Morgan warning that photovoltaic-industry consumption could take a significant hit in 2026 due to thrifting and material substitution. This could lead to a decline of about 60 million ounces, equivalent to a 30% reduction in usage.
Institutional investors are already adjusting, with the iShares Silver Trust cutting its holdings by 25.29 tonnes yesterday. The pullback among large players reflects a wait-and-see mood, with rate worries and sturdy bond yields temporarily dulling the appeal of silver.